MEMBER DIARY

Is Obama Set to Repeat Clinton’s Big Mistake?

Within a Few Weeks He'll Decide How Far Left to Turn

In 1992, Bill Clinton campaigned for the presidency on a platform that focused on tax cuts (to get the economy moving again), welfare reform, and getting tough on crime. By the time he vetted his agenda with Congressional leaders, the early focus of his administration had shifted to enacting a public works package, lifting the ban on gays serving in the military, and raising taxes. That shift pushed his presidency off course, and he never really recovered. In many ways, the outcome of the 1994 elections was determined by Clinton’s early shift to the Left. It’s clear that avoiding such mistakes is one of the early priorities of the Obama team.

But if Obama is trying to avoid the same mistake, he’s going to have to stare down a critical mass of Capitol Hill Democrats. It seems that everywhere you turn, liberals in Congress are criticizing Obama’s ‘tax cut’ plans:

Members of the Senate Finance Committee today expressed concern about several of President-elect Obama’s proposed tax breaks for businesses and individuals, arguing they may need to be reworked or scrapped. The panel met behind closed doors this morning, and Senate Finance Chairman Max Baucus said he has “very, very tentatively” set the markup for Jan. 22. “This is an early part of this whole process, and a lot of preliminary questions are going to be asked,” Baucus said. “We’re working our way through the search for the truth.” Senators raised concerns about Obama’s proposed $3,000 tax credit for companies that hire workers and a $500 to $1,000 credit for individuals and working families.

Senate Budget Chairman Kent Conrad said the jobs credit could provide an incentive to hire people to build cars and other products that cannot be met by consumer demand. By the same token, an extra $20 or so in each paycheck through adjusted withholding will not spur a rise in consumer spending, he and others said. “Marginal incentives do not work when the economy is falling away from you dramatically; you’ve got to come in and make certain the money gets spent at the time the economy is weak,” Conrad said. Sen. Ron Wyden, D-Ore., said history suggests tax credits do not promote hires and that the economic stimulus last year demonstrated that recipients largely saved their tax rebates rather than spent them. Wyden has advocated spending on infrastructure and suggested there was broad bipartisan support for that. Regarding some of Obama’s tax proposals, Sen. John Kerry, D-Mass., said, “I think there are cuts that are not going to stand the test of whether they create jobs.”

“I’m a little concerned the way Mr. Summers and others are going on this,” Harkin said. “To me it still looks like … more of this trickle-down. If we just put it in at the top it’s going to trickle down. A number of people in there have said we’ve go to have programs that actually create jobs and put people to work.”

Senate Majority Leader Harry Reid (D-Nev.) declined to comment on the specifics of the meeting but said he thinks Summers “learned a lot about how we feel. … Some felt there was not enough here and too much there.”

Frank said on NPR’s “Marketplace Morning Report” that he believes the spending package Obama supports will be large enough to help the ailing economy but that he does not entirely agree with how the money will be used.

“I have some difference because I think they may be doing too much tax-cutting and not enough direct spending from the standpoint of immediate job creation,” Frank said.

Obama has a few options here. He can ignore Congressional Democrats and insist that they pass his plan as is. He can ditch the tax cuts and replace them with new spending. Or he can inflate the overall size of the package to accommodate both — clearly an option that would please many on the Left.

Here the most attractive option is the first: tell Capitol Hill Democrats to pound sand, even if it makes him a few enemies. But is this the course he will take? If he goes that route, he still winds up with a ‘stimulus package’ that will do little to create jobs. But at least he may not appear to have lurched to the Left. In fact, he will doubtless get points in the media for having stuck to a ‘middle course,’ ignoring the appeals from both the Left and the Right.

That’s not to say he’s out of the woods of course; he still needs to get the economy moving again. And there’s the further worry that even the $775 billion or so that he wishes to borrow may be more than the dollar can sustain:

While Obama speaks today and his team gives interviews over the next few weeks, try to keep in mind the structure they are putting in place. Without a strategy set from the beginning to reduce the spending after the economy stabilizes, this stimulus program will decimate US finances for years and may trigger an exit strategy by foreign investors from US government securities and the US dollar.

Barack Obama and the Hill Democrats ‘take ownership’ of the economy the day that Obama signs their spending package into law. He better get it right, or the next few years will be very unpleasant for everyone.